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Petitioner: ZONE-I, R.T.O.-II, KARACHI VS Respondent: Messrs I.P.P., KARACHI
Court Name: Appellate Tribunal Inland Revenue Judge(s): Muhammad Jawed Zakaria, Syed Ayaz Mehmood Title: ZONE-I, R.T.O.-II, KARACHI vs Messrs I.P.P., KARACHI Case No.: S.T.A. No, 307/KB of 2016 Date of Judgment:2018-12-06 Reported As: 2019 PTD (Trib.) 542 Result: Appeal dismissed
Judgment ORDER MUHAMMAD JAWED ZAKARIA, (JUDICIAL MEMBER).---By this order, we intend to dispose of above titled appeal filed by the appellant/department against the impugned Order No,17 dated 30.03.2016 passed by the learned Commissioner Inland Revenue (Appeals-IV) Karachi (the CIR(A)). 2. Brief facts of the case are that the Taxpayer/respondent is engaged in manufacturing of various types of chemicals and shoe adhesives which have been mostly supplied to unregistered lather and footwear manufacturers at zero rate or at reduced rate of 6% or 5% by availing benefit of concessionary SROs time to time issued by the Federal Government for five export oriented sectors including lather and footwear. The Directorate of Intelligence and Investigation-IR, Karachi during the course of an investigation conducted against another taxpayer and initiated the action under section 38 of the Act against another taxpayer (not the respondent) during the visit/raid on such taxpayer premises by the officers of I&I. On the same place other three tax payers (registered persons) were also operating from the same premises including the taxpayer/the respondent. Accordingly, the I&I officers seized the records of the respondent also and found some discrepancies in respondent's records. The case was forwarded to the. Deputy Commissioner Inland Revenue Audit Unit-01, sales tax refund division, Zone-I, RTO-II, Karachi (the DCIT). Pursuant of the contravention report of I&I, the DCIR issued a show-cause notice C.No, DCIR/Aud-1/Zone- I/RTO-II/2014/103 Dated 30-09-2014 for the tax periods from April 2010 to June 2012. The same was properly replied by the respondent. However, the DCIR passed the impugned Order-in:Original No,09/2015 dated 02.02.2015 (0-1-0). The respondent filed an appeal before the learned CIR(A) who passed the impugned appellate order and decided, the appeal in favour of the taxpayer. The department being aggrieved with the impugned order-in-appeal has filed the instant appeal
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before this Tribunal, on the following grounds: "2- That the learned Commissioner Appeals IV, has not afforded the opportunity of being heard to the department and decided the case unheard which is contrary to norms of justice. 3- The learned Commissioner Appeal IV has erred to held order barred by time by merely 5 days and failed consider that, the competent authority i,e, Commissioner has extended the period of proceedings under section 11(5) proviso of the Sales Tax Act, 1990 vide letter No, 1(1)CIR/Zone- 1/RTO-11/2013/3854 dated 27-01-2015. Moreover the AR of the respondent claimed that they did not received of copy of show-cause notice thus received on 09-10-2014, the receiving of AR can be seen on the copy of show-cause notice. 4- The learned Commissioner Appeal erred in understanding the SRO 509(1)/2007 dated 9th June, 2007 and SRO 283(1)2011 1st April 2011 an subsequent changes vide SRO 1058(1)/2011 dated 23rd November, 2011, SRO 1012(1)/2011 4th November, 2011 and SRO 1125(1)/2011 dated 31-December, 2011. 5- The learned Commissioner Appeal has ignored that, respondent has failed to verify the payments under section 73 of the Sales Tax Act, 1990; and did not discuss that, how payment under section 73 has been made and verified. 6- The, the learned Commissioner Appeal-1V erred in understanding the sections 7, 8 and 10 of the Sales Tax Act, 1990 is bad in law and did not discuss that, how the all input tax adjusted and refunded was as per law. 7- The learned Commissioner Appeal-IV has failed co relates the purchases with supplies in view of section 8 of the Sales Tax Act, 1990." 3. Before us, the DR supported the 04-0 as well as the grounds of appeal and emphasis on correctness of investigation conducted by the Directorate of I&I. The learned D.R. argued that the departmental case is based on the following--- a) During action under section 38 against another taxpayer department was learned that 3 more registered persons were also operation their business from same premises including the respondent. b) Records of respondent also resumed. It has been observed that most of the sales of the responded were made to unregistered persons. Most of the sales of declared production of item "chemicals" by the respondent were made without entitlement benefit of concessionary SROs at zero percent under cover of SRO 509(1)/2007 and thereafter since 1st April, 2011 at reduced rate of 6% or 5% under SRO 283(1)/2011 dated 1st April, 2011, SRO 1012(1)/2011 dated 4th November, 2011, SRO 1058(1)/ 2011 dated 23rd November, 2011 and SRO 1125(1)/2011 dated 31st December, 2011 during the respective tax periods. d)It has been observed that consumption of chemicals and raw materials were not same in each month, meaning thereby there is no specific formula. Therefore the department is of the view that declared manufacturing and sale of shoe adhesive by the respondent is fake and respondent used it for claiming illegitimate refunds of sales tax. e) Further that the CIR(A) has failed to provide opportunity of hearing to the appellant department and declaring the order-in-original barred by time under section 11(5). 4. On the other hand, learned AR of the Respondent/taxpayer strongly rebutted the contentions of the learned D.R. and supported the order of the learned CIR(A). The AR mostly emphasis on the following: a) That action against the respondent by the I&I and the DCIR was taken with mala fide intention in reaction of the Respondent request before the Federal Tax Ombudsman (FTO) against continues delay in issuing refunds to the respondent. The action of the I&I of resuming records of the respondent is illegal being without powers and any notice and proceedings against the respondent. The CIR(A) has provided opportunity of hearing to the appellant which is reflected in the impugned
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order. d) The 0-1-0 is barred by time under section 11(5) of the Act. e) All departments of Inland Revenue including sales tax department have completed the audit of respondent from time to time upto financial year 2012. Not a single contravention has been detected by above departments of Inland Revenue. Including PHYSICAL VERIFICATION of respondent business premises has been carried out and no violation of registration profile has been deducted in any such exercise. f) Further there is no allegation regarding input claimed from Black Listed, neither Suspended Units nor any charges framed for violation of Section 73 of the Sales Tax Act, 1990 (the Act). Hence all input claims are genuine and all payments to suppliers are made in full compliance of Section 73. g) The application of sub-clause (ii) of clause (c) of SROs 509; 283; 1058 and 1125 on which the show-cause notice is based, cannot be read in isolation, instead it should be read with sub-clause (iv) of clause (b) of said SROs, hence, referred sub-clause (ii) of clause (c) has no relationship with the business of Appellant. h) That the CIR(A) basically vacated the order-in-original on the basis that the show-cause notice is very vague. The officer is miserably failed to identify any buyer to whom supplies were made at zero rates of tax and which ones were made at 6% or at 5% to which sub-clause (ii) of Clause (c) of SROs 283 and 1058 applied and what was the wrong with the supplies. Issues and Findings/Opinion of the Court. 5. We have heard both the learned representatives and have also gone through the records of the case, impugned orders passed by the offices below as well as case laws cited at bar. We deem it appropriate to examine the issues involved in this appeal one by one especially legal issues raised by both the parties- Opportunity of Hearing 6. Regarding the D.R stance that CIR(A) has not provided opportunity of hearing, we may observe that CIR(A) in impugned order specifically mentioned at page 2 that: "Call notices were issued both to the department and the appellant. None attended from the department's side. Mr. Muhammad Ali, FCA, AR attended on behalf of the appellant with whom case was discussed in detail." The department has filed the appeal on the vague ground that the order was passed without affording any opportunity of being heard to the Department. This ground of appeal filed by the department was drafted and Memorandum of appeal signed by the top brass in departmental hierarchy without minutely examining the order of the learned CIR(A) against which the instant appeal has been filed by the department. We disapprove tendency of appeals filed by the department in so careless manner and without proper scrutiny of the case. Furthermore, the notice of hearing was issued to both parties, but no one appeared from the Department or received any extension in time or any written comments on taxpayer's appeal, whereas the office of the DCIR and the CIR(A) are located in same building which shows non interest of the department. Further, before us, the departmental representative also tried to argue on this vague ground of appeal. We also observe that the CIR(A) duly reflected the stance of the department in the appellate order and consider each para of department's stance taken in order-in-original for deciding the appeal vide his order dated 30-03-2016. Therefore, we don't agree with the DR stance and are of the view that the CIR(A) not only provide opportunity of hearing but also discussed stance of the Department on each issue in impugned order. Order-in-original Bared by Time under section 11(5) 7.The next ground agitated by the D.R. regarding findings of the CIR(A) by holding that the order- in-original was barred by time as prescribed under section 11(5) of the Act. The show cause was issued on 30-09-2014, order thereon had to be passed within 120 days as per mandatory
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requirement of proviso to section 11(5) of the Act, limitation for passing of order ran out on 27-01- 2015, whereas order-in-original was passed on 2/02/2015 as written by hand by the DCIR on the order-in-original which is barred by 05 days and if taken 30.01.2015 as typed then the order is also barred by one day which is after the statutory time limit provided in the law. So this is a time barred order which is not sustainable in the eyes of law. Section 11(5) also provides that a period of extension in time upto 30 days sought by the taxpayers during the hearings may also be excluded from 120 days period, however, it was found that the taxpayer was not asked for any extension during proceedings. The respective Commissioner Inland Revenue may also authorised to extend such period of 120 days upto another 90 days, for reason to be recorder in writing. The DCIR while passing the time barred order-in-original after laps of 5 days had not stated any word or reason for such delay and also confront the taxpayer with reasons for extension in time sought or allowed by the respective Commissioner Inland Revenue in the order-in-original. Now at this stage D.R. had taken an stance that the respective Commissioner Inland Revenue has extended the period of proceedings under section 11(5) vide letter No, 1(1)CIR/Zone-I/RTO-11/2013/3854 dated 27-01-2015, and therefore order-in-original was not time barred. In this respect we do not find any weight in appellant/department's plea, and letter from Commissioner seems issued afterthought and glaring after the expiry period of 120 days as if the DCIR was aware at the time of passing the order-in-original that the time under section 11(5) had already lapsed, he would have required to mention this position in order-in-original and confront the same to the taxpayer and should also provide the reference of extension letter issued by the Commissioner with reason as required by the provisions of section 11(5). Therefore, we do not accept such extension letter at this belated stage being after thought. 8. There is plethora of the judgments of the apex courts wherein the superior courts have discouraged passing of such type of orders. In a case reported as Pakistan Ordnance Factories (POF) Wah, Cant. v. Collector of Customs, Sales Tax and Central Excise Adjudication), Islamabad and others 2012 PTD 1016 (H.C.Isl.), the Honorable Islamabad High Court held as under: "Government departments could not be put at Higher pedestal in matter of limitation, rather they would be supposed to act within statutory period. Order was barred by limitation in circumstances." The above principle was also emphasized by Honorable Supreme Court of Pakistan in a decision of Commissioner of Income Tax v. Mr. Hakim Ali Zardari reported as SBLR 2006 SC 36/A. head notes are produced below for reference purposes: "The question of limitation being a matter of statute and provisions thereof being mandatory, can be raised before any forum---same cannot be waived---even if waived could be taken by the party waiving it, and even by the court itself---because matter of limitation would not be left upon the parties, duty is imposed on court to see that proceeding within limitation or not." In a reported judgment cited as 2013 PTD (Trib.) 843 International Cigarette Industries (Pvt.) Ltd. v. ACIR, the Tribunal was pleased to hold as under: "Limitation-Taxpayer contended that the law required that order in original should be passed within 120 days of issuance of show-cause notice or within such extended period as the Commissioner may for the reason to be recorded in writing for further 60 days. As no sufficient reasons had been recorded by the Commissioner for extension of time, while further extension had been granted after the period of 120 days already stood expired to this effect-validity - period of limitation could be extended but permission of extension must be given by the Commissioner by recording sufficient reasons of extension before the expiry of prescribed period of limitation as mentioned in sections 11(5)/36(3) of Sales Tax Act, 1990. No sufficient reasons had been recorded by the competent authority about the extension of time - Show-cause notice and order in original was vacated by the Appellate Tribunal."
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In another case law reported as 1992 SCMR 1898 FOP v. Messrs Ibrahim Textile Mills Ltd. the Hon'ble Court held that: "If the law prescribed of time for recovery of money, after its lapse recover is not enforceable through courts." The Hon'ble Court in the case reported as 2001 SCMR 838 held that: "As the impugned order was passed after the lapse of statutory period has been held to be without any jurisdiction, the remaining issues do not need to be dealt with" In a recent judgment the Tribunal in the case reported as 2017 PTD (Trib.) 156 the ATIR decided the issue on the basis of time-barred show-cause notice issued under section 11 of the Act, without going into the merits of the case. The Tribunal yet in another case of Messrs Fazal Paper Mills Ltd. Okara v. CIR RTO Lahore reported as 2014 PTD (Trib.) 448 held as under: "Once limitation had started to run and had come to an end the assessee acquired a vested right of escapement of assessment by lapse of time." In view of the above ratio settled by the superior courts as well as by this Tribunal we do not find any warrant to interfere in the order of the learned CIR(A) which is maintained and the departmental appeal is dismissed on this ground too. Benefit of reduced rate under the Notification and other Provisions of the Act. 9. The DR has also raised grounds that the learned CIR(A),while passing the impugned order in favour of the respondent, has failed to understand that the respondent was unable to substantiate his legal position for getting benefit of reduce rate under aforesaid notifications and claiming refunds. In this respect we may observe that the CIR(A) had specifically discussed each of above issue in impugned order, perhaps he was of the view that this is responsibility of the I&I officials and the DCIR that while they were issuing the contravention report, show-cause notice and order-in- original had given reasoning and evidences in support of charges raised against the respondent taxpayer, the CIR(A) was of the view that all of three above documents and officers were failed to provide a single document in favour of charges raised. We reproduce below the observations of the CIR(A) taken in impugned order in this regards, which are self-explanatory. Precisely relevant extract is as under: "A bare reading of above would show that the said SCN is very vague in respect of charges levelled therein. The officer miserably failed to point out as to which supplies were made at zero rate of tax and which ones were made at 6% or at 4% to which sub clause (ii) of clause (c) of SRO 283 and 1058 applied and what was wrong with the supplies (which he should have identified) made by the appellant and how refund claimed there against was illegal?. The officer was legally bound to issue a very clear SCN framing solid charges therein but instead of doing that he simply forwarded contents of an unspecific contravention report to the appellant. The higher appellate for a in such like situations always disapproved the orders based upon unspecific SCNs. In one of their judgment reported as 2011 PTD (Trib.) 866 it was held that; "Validity of show-cause notice was foundational to the assumption of jurisdiction by the revenue authority to pass the order. Show-cause notice alleged the illegal sanction of refund but patently omitted to specify the mode of error or the act constituting/causing the purported error - assumption of jurisdiction was an act contrary to law and show-cause notice served upon the registered person was patently illegal and without lawful authority and all the orders based there upon were liable to be set aside show-cause notice, all proceedings and orders based there upon were without jurisdiction." In a recent judgment the learned ATIR held as under; "We find force in the argument of the learned AR of the appellant that the appellant was served with a defective show-cause notice suffering from vagueness. A vague show-cause notice fails to meet the fundamental legal requirements and therefore demand created as a result thereof is
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not sustainable (2011) 103 TAX 332 (Trib) = 2011 PTD 808. Further, a vague show-cause notice does not stand the test of judicial scrutiny in terms of honorable Supreme Court of Pakistan's judgment (M/s. Caltex Oil Pakistan Ltd v. Collector of Sales Tax and others PTCL 2004 CL 494) wherein it was held that a show-cause notice carrying defectiveness of vagueness may not stand the test of judicial scrutiny." Further, both the SRO 283(1)12011 and SRO 1058(1)12011 which were applied in appellant's case have three parts i,e, (a), (b) and (c) which deal (a) with textile sector, (b) with leather, sports and surgical goods sector and (c) miscellaneous. The learned officer though made a reference a clause (ii) of part C of above mentions SROs in his show-cause notice and order but he failed to make a case against the appellant in clear terms by not dislodging the appellant's claim that it made supplies to such unorganized sectors which by virtue of their status of cottage industry were exempted from sales tax. The officer for declaring appellant's claim of refund to be in genuine made reliance on two grounds i,e, 1) there are 04- persons operating from the same premises and 2) The RP not only made illegitimate adjustment of sales tax but also claimed refunds in respect of supplies made by it @6% and 4%. The operating of more than one concern from the same premises is not at all restricted by law. And then officer did not bother of identify such supplies on which refund could not be claimed. So his order is bald order. The tax cannot be charged just by passing a sweeping remark as officer has done in this case. All government functionaries are required to pass reasoned and speaking orders. It is not only requirement of natural justice and fair trial but also of the section 24-A of the General Clauses Act duly endorsed by the honorable Supreme Court of Pakistan in their various judgments like 2013 SCMR 1159 and 2007 SCMR 152. I am also inclined to agree with the learned AR that appellant was not provided opportunity of hearing which means opportunity of personal hearing within the meaning of following judgment of the honorable Supreme Court of Pakistan operating part thereof is reproduce as under;
Meaning and scope__ Hearing (of a case) meant a meaningful, purposeful and effective hearing which enabled a judge to understand legal and factual proposition involved in the matter as opposed to an illusionary and cursory hearing conducted barely as a formality and to bring on record mere compliance of the rule of hearing.... Where effective hearing was not provided, it shall tantamount to non hearing of the party concerned and legal consequences of the non hearing of the parties shall follow." So non hearing of the appellant means violation of the constitutional guarantees and amounts to taking away of property without due process of law. Then there is another important aspect of the case i,e, the show cause in the instant case was issued on 30-09-2014, order thereon had to be passed within 120 days or within the time extended period of 90 days by the commissioner as per mandatory requirement of proviso to section 11(5) of the S.T.A. 1990. In this case limitation for passing of order ran out on 29.01.2015 whereas order was passed on 30-01-2015 i,e, one day after the statutory time limit provided in the law. So this is a time barred order which is not sustainable in the eyes of law which is hereby ANNULLED." We are in full agreement with the above observations of the CIR(A), particularly when the action against the respondent was taken under section 38 of the Act and levelled charges of tax fraud, even though the appellant tax department had already conducted the sales tax audit of the respondent for the same tax periods, the sales tax refunds against same or similar supplies/sale or purchases had been processed or issued to the respondent continuously after due verifications and applying mind by the tax officers and before issuing refund pre-audit was conducted and even post refund audit were also conducted and concluded by the tax officers which establishes the genuineness of the claim of the Respondent/ Taxpayer. In such scenario this must be the heavy
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responsibility of the I&I officials and the DCIR to take action under section 38 of the Act only after having firm and sufficient information and evidences of tax fraud against the respondent and not merely on the basis of presumption and assumption. The action of the taxing authorities is against the norms of justice and without legal sanction and authority. The department was totally failed in adhering to its own conduct and past practice and treatment afforded to the taxpayer by the department in accepting the refund. At this stage of appeal we are expecting that the CIR(A) ought to ask the respondent to justify its treatment of taking benefits of reduced rates or claiming refunds of input tax on purchases which already checked and verified during the sales tax audit and refund and post refund proceedings by the same departments officers. Therefore, we fully agree with the decision of the CIR(A) that the show-cause notice and order-in-original are vague in nature and not sustainable in eyes of law. Proceedings under Section 38 10. At this stage this is very relevant to discuss the legitimacy of proceedings initiated by the department under section 38 of the Act against the respondent. We note that the assessment proceeding initiated by the DCIR against the respondent under section 11 of the Act including impugned show-cause notice and order-in-original were totally based on contravention report issued by the I&I dated 08-09-2014 on conclusion of alleged proceeding under section 38 of the Act. The respondent has continuously challenged the legality of alleged action and proceeding under section 38 and mala fide intention of the tax department. For the sake of clarity and reaching at the appropriate conclusion, we deem it appropriate to recapitulate hereunder the facts and circumstances under which proceedings were initiated under section 38 ibid: i) The respondent is involved in manufacturing and supply of various types of "shoe adhesives"/Chemicals that are listed in Table of SRO 1125(1)/2011 dated: 31-12-11, mostly to various unregistered shoe maker cottage industries at concessional sales tax rate of 0%, 5% or 6% or rates applicable under notifications five export oriented sectors issued by Federal Government from time to time. The respondent has…
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